Lessons in rocket science from BlackBerry

By Zak Mir.

Over the last 20 years I must have amassed dozens of books about markets and technical analysis. I’ve always adopted a simple guiding principle to help me chose, which, of the many hundreds (or even thousands) of titles out there, are best for me. Is the book too complicated or too simple to do the job?

“The job”, of course, is to help deepen our understanding of markets and allow us to make better trading decisions. What has always surprised is the apparent equal availability of Mickey Mouse material and the number of publications, which are akin to explanations of rocket science. Striking the right balance between complex concepts and simple analysis is extremely tough (and something we always strive to achieve at Spreadbet Magazine).

It can often be the case that once a publication is committed to keeping it simple, the author will airbrush out the inconveniently complicated aspects of their chosen subject. Equally “serious” books tend to have a bias towards providing far too much information, when stripped down insight would be more appropriate.

The current coverage of ailing mobile phone specialist Blackberry (BBRY) is a perfect example of my point:

With regards to BBRY, there are many disparate factors swirling around the share price. One of these is the reported $10billion value of the company’s patents and assets versus a market value of just $4billion at the end of August. The company itself values its intellectual property at $3.35billion – nearly the entire market cap. This all contrasts greatly  with some of the other facts surrounding the business, notably its near $1billion annual loss, the devotion of its middle aged “business” customer to a 70’s style product and the way in which private equity group Fairfax is mulling over a $4.7billion offer.

For what it’s worth, I am a little biased towards BBRY as I believe the company can turn its fortunes around IF it releases the right product onto the market. It wasn’t that long ago after all that BBRY had over 40% of the US market. This has fallen today to less than 5% and while I don’t necessarily expect it to reclaim the glory days there is still an opportunity for it to grow.

In many ways, everything here about the Blackberry story currently ticks the boxes of a classic private equity play – the down at heel brand which has lost its way, only to be snapped up at a bargain price and then sold on a couple of years down the line no doubt for a vast profit.

Rather than grappling with the fundamental fall from grace, I prefer now to look at the charts. Here we have what is apparently a cut and dried situation. There is an obvious unfilled gap down through the 200MA.  This event, at the end of July, was perhaps the simplest signal on the stock you could find to go short. It was an emphatic trend changing moment which, from a technical perspective, outweighs any issues such as cash burn, competition or a loss of corporate strategy. Literally, this is a picture (or a chart!) painting a thousand words and is the kind of inspiration that could change someone from being interested in “normal” analysis to charting.

Ironically, despite the great summer breakdown, we do actually have at least a temporary bottom fishing set up here. The assumption, or perhaps more accurately, the hope, is that there could be a rebound off the April support line at $7 to target the $9/50MA zone.  Nevertheless, courtesy of the gap backdrop, such a bargain hunting opportunity is only for aggressive traders – or of course private equity groups!